2023 results are in line with expectations, and profitability continues to rise

According to the company's 2023 annual report, the company's revenue in 2023 was 1.80 billion yuan, down 22.9% year on year; net profit to mother was -100 million yuan, a year-on-year loss reduction of 62.1%, in line with the previously released performance forecast (loss of 0.65 to 105 million yuan). The year-on-year reduction in the company's net profit was mainly due to the company's focus on the core circuit, reasonable adjustment of the business structure, improvement in revenue quality, and significant year-on-year improvement in overall gross margin. Considering fluctuations on the demand side of the market, we expect the company's net profit forecast for 2024-2026 to be 0.81/1.27/1.63 million yuan (previous value: 1.13/1.79/-) billion yuan, respectively. Comparable to the company's 2024 Wind consensus, the average PE value is 71x. Considering the company's continued breakthroughs in the highway business and public security circuit, the target price is 3.65 yuan (previous value: 3.89 yuan), maintaining the “gain” rating.

Focus on the core racetrack, and the Internet of Vehicles business is growing steadily

According to the company's annual report, the company's main products in 2023 are divided into three categories: (1) “IoT connectivity and terminals and applications” achieved revenue of 1.10 billion yuan, a year-on-year decrease of 20.5%, accounting for 61.3% of revenue.

Among them, connected car products achieved revenue of 360 million yuan, an increase of 10.9% over the previous year, and achieved steady growth. (2) The revenue of “police terminals and police informatization applications” was 170 million yuan, a year-on-year decrease of 20.9%, accounting for 9.3% of revenue. (3) The revenue of “Software Systems and Solutions” was 530 million yuan, a year-on-year decrease of 28.1%, accounting for 29.4%. By industry, the company's revenue share in the two main tracks of “transportation industry” and “public security industry” exceeds 80%, and strategic resources are more focused.

Gross margin increased significantly, and cost-side control was effective

In 2023, the company strictly restricted system integration business and actively reduced businesses with low gross margins and capital advances, focusing on product and service businesses with short cycles, good payback, and no advance capital required to improve the company's profitability and enhance cash flow. In 2023, the company's consolidated gross margin was 31.5%, up 5.3 pcts year-on-year. In terms of cash flow, the company's net operating cash flow in 2023 was 180 million yuan, an increase of 183.7% over the previous year, mainly due to a decrease in procurement advances. In terms of expenses, sales/management/R&D expenses in 2023 were 12.9%/9.1%/15.2%, respectively, -0.6/+1.2/+2.0pct year on year; the three expenses decreased by 140 million yuan year on year, mainly due to the company's resource focus and cost control policy strengthening.

Leading smart city IoT service provider, focusing on the continuous growth of the transport+public security market. The company strives to become a leading global smart city IoT product and service provider, focusing on the two major tracks of the Internet of Vehicles, smart transportation, and public safety: in the transportation market, the company is expected to benefit from the rapid growth of electronic license plates, vehicle-side products, etc. According to the company's 23rd annual report, the company's electronic license plate (two-wheeler market) has received tens of millions of digital number plate orders in many provincial capitals; the public security market is expected to benefit from the national public safety informatization construction trend. Law enforcement case handling platforms are at the top of the national market share ranking. They have received orders from national platforms such as the Ministry of Public Security's legal information management platform and the General Administration of Customs's anti-smuggling platform, laying a good foundation for subsequent business development.

Risk warning: The order volume falls short of expectations, and there is a certain cycle of new customer expansion.